Banking Optimism Boosts Financial Funds

A relief rally across the financial sector prompted an average fund gain of 23% for the week.

Shadow and gloom were forced aside last week as the masters of the banking industry decreed that 2009 would be a profitable year for their banks.

All three CEOs, Vikram Pandit of Citigroup ( C), Jamie Dimon of JPMorgan Chase ( JPM) and Kenneth Lewis of Bank of America ( BAC), shined a light on their preliminary results of profits in January and February.

Their confidence sparked rallies of 64%, 37%, and 85%, respectively, in their company's share prices. This spread to a relief rally across the financial sector, with the average financial fund tracked by TheStreet.com Ratings jumping 23%, excluding inverse funds, for the five trading days ending Thursday, March 12.

The gains were magnified by severely depressed starting points. By way of comparison, the optimism that Armageddon has once again been postponed added 10% to S&P 500 Index, 8.4% to the NASDAQ 100 Stock Index and 8.6% to the Dow Jones Industrial Average.

Suddenly, Bank of America's Countrywide acquisition nightmare is being hailed by the company's head of mortgage and home equity origination unit, Barbara Desoer, as "really paying off for us" with added capacity to capitalize on the refinance boom spurred by lower interest rates. Freddie Mac's reading of the average 30-year fixed-mortgage rate shed 143 basis points to 5.03% from late last year.

Citigroup Chairman Richard Parsons described his company as "one of the better capitalized banks in the world," in explaining that Citigroup wouldn't need more government capital, thus making nationalization unlikely. Another sign of confidence came from required filings by Citigroup executives buying Citigroup stock at very cheap levels last week. Director Roberto Hernandez's 6 million share purchase and Citi Latin America CEO Manuel Medina-Mora's 1.5 million new shares have open gains of $2.5 million and $645,000 in just a few days. The theory is that insiders have the best view of what a company is really worth, so their purchases are considered a bullish signal.